By Ryan Kirby, General Counsel of Insurance Office of America (Guest Contributor)
The early stages of an insurance claim are often the most critical. Your phone rings – there was an accident at one of your properties, a bad environmental report came in, some worrisome information from an employee is reported. Make no mistake: potential lawsuits are in your future. Even the threat of a claim (depending on its severity and scope) is enough to warrant giving notice to your insurance carrier as soon as possible. The strategic question becomes: who should notice the claim to your insurance carrier, and what should be included?
A real estate investor must avoid giving its insurance carrier potential grounds to deny coverage, thereby putting cash flow, or worse yet, the property at risk. Below are some best practices real estate companies should employ when making an insurance claim.
- Put together the right team and engage them early. The outset of an insurance claim is where an experienced risk management team of attorneys and insurance brokers can deliver the most value. A denial of coverage can pose an existential threat to a property. The right team will be instrumental in securing coverage for a claim, and thereafter, will serve as your claims managers.
Capable insurance brokers understand not only how to best approach insurance carriers and provide them notice of a claim, but they can interface with your attorneys and provide their unique knowledge of policies and potential coverage disputes. Having your insurance broker and attorney in lockstep can create a real coverage advantage. Ensuring that one or more of your policies picks up the claim rather than having your various carriers point the finger at one another to deny coverage. That said, before submitting a claim to your carrier, make sure you consult with both your attorney and your broker and, preferably, have them communicating together. Having a call among your broker, your attorney and you will, in most cases, extend the attorney-client privilege to that critical initial discussion.
- Do not reach out to your carrier directly. A common mistake occurs when an insured reaches out directly to their insurance carrier during the early stages of a claim. Instead of reaching out to their broker or attorney – or ideally both – the insured gets themselves into a conversation with an adjuster who they believe is solely on their side.
Savvy insurance adjusters may ask their insureds leading questions. They may push for certain admissions or obtain certain statements of fact, all taken down in notes or a recording – and all of which mightprovide the basis for claim denial.
Good insurance brokers and attorneys are crucial allies in presenting claims to obtain proper coverage. Your attorneys should compile the claims information so the carrier will take the claim seriously, while also protecting any privileged materials. Once the relevant information is assembled with advice of counsel, your broker should present it to the carrier. A capable broker can best leverage its business relationship with the carrier and can often get your coverage resolved before your attorney gets overly involved – thereby reducing out of pocket legal expenses.
- Leverage your broker to get better legal representation. Nearly all insurance carriers have long-standing negotiated rates with approved law firms (i.e., "panel counsel"). Often, your insurance policy will allow the insurance carrier to dictate the law firm that handles the claim. Even though your long-standing attorneys best understand your business, more often than not, these attorneys will have higher hourly rates than your carrier's panel counsel. As a result, your business may be left with a Hobson's choice: pay your chosen attorney out of pocket – thereby potentially forgoing coverage – or use the unknown panel counsel.
Carriers point to the value of reduced billing rates of panel counsel, but those reduced rates might disproportionately benefit the insurer who is paying the fees once your claim is accepted. Moreover, the early stages of a claim or lawsuit are always stressful, and businesses often grow frustrated bringing new panel lawyers up to speed on their business practices, particularly if familiarity with the business is a key component of the claim.
Navigating these possible dilemmas from the outset is always in an insured's best interest. An experienced insurance broker can help your preferred attorney get approved by a carrier or can negotiate hybrid fee agreements or billing rates for panel counsel. Sometimes the carrier will allow your chosen lawyer to handle the defense if there is an agreement that the carrier pays the rates for panel counsel and the insured makes up the difference. A sophisticated broker can work multiple angles for you in this regard, particularly when the policy requires use of panel counsel or there are significant retentions and deductibles to consider. A broker who can negotiate drawdowns in these scenarios has a rare, valuable skillset, because they ultimately can save you a lot of money.
- Keep Your Preferred Team Involved. Even if you are forced to use panel counsel by your carrier, a good insurance broker will educate your panel counsel on your business, focus them on the key issues and manage the claims process. Some businesses feel panel attorneys can be beholden to the insurance carrier, so they will engage their preferred legal counsel to oversee the panel attorneys and help manage the litigation.
In summary, before your company unknowingly puts insurance coverage at risk, have your insurance broker and attorneys work together to best present your claim to your carrier. Putting your best foot forward minimizes the risk of claim denial, and your team members' different perspectives will allow you to see all angles of a claim. After your claim is submitted, continue to leverage your team to manage the claims process, limit potential liability, and reduce the burden of litigation on your business.
Ryan Kirby is the General Counsel of IOA (Insurance Office of America), a national insurance agency with over 1500 employees. Prior to IOA, Ryan was the Chief Legal Officer & General Counsel of Atlas General Insurance Services. Ryan holds a B.A. in English from the University of Colorado at Boulder and a J.D. from the University of San Diego School of Law. Ryan is a California licensed attorney, and nationally licensed insurance broker.